High Yield Bonds

What is High Yield Bonds?

High yield bonds are bonds issued by a corporation that has been assigned below investment grade threshold by popular credit rating agencies such as below “BBB” from Standard & Poor and below “Baa” from Moody’s due to additional credit risks involved in interest and principal repayment. However, to compensate for higher default risks, these bonds offer attractive returns to investors.

Features of High Yield Bond

High Yield Bonds Types

High-Yield-Bonds

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Who are the Investors in High Yield Bonds?

Who are the Borrowers?

High yield financing has played a prominent role in certain sectors such as technology, media, energy, IT infrastructure. Companies in these sectors have a high debt burden relative to their earnings and cash flow. Some are startup companies or well-established companies restructuring, or high yield loans are used to finance the leveraged buyout, refinancing existing loans, acquisition, takeovers, etc.

High Yield Indexes

  • Standard & poor high yield corporate bond index
  • CSFB high yield II index
  • Bloomberg USD high yield corporate-based index
  • FINRA Bloomberg active high yield US corporate bond index
  • Barclays high yield index
  • Citigroup US high yield market index

Advantages of High Yield Bonds

Disadvantages of High Yield Bonds

Conclusion

A major attraction of high yield bonds is that it seems to generate both equity-like returns with bond type risks. Studies have shown High yield market has a negative correlationNegative CorrelationA negative correlation is an effective relationship between two variables in which the values of the dependent and independent variables move in opposite directions. For example, when an independent variable increases, the dependent variable decreases, and vice versa.read more with the government bond market and low positive to zero with equities and investment-grade bonds.

This has been a guide to What is High Yield Bonds & its Definition. Here we discuss the types of high yield bonds and its features along with advantages and disadvantages. You can learn more about from the following articles –

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